With a simple search of "defaults on apartments" on Google, you find a plethora of stories of apartment real estate deals falling apartment. Since Google has my location near SF, I'm finding stories like:
- Luxury San Francisco apartment complex next to 'X' HQ could default on mortgage (source)
- Developer of proposed apartments in San Jose defaults on loan
- Walnut Creek apartment complex goes back to lender after loan default
These are some of the headlines. Once you look outside the SF Bay Area, you find many more apartment real estate deals going under. The problems that are happening with office real estate are leaking into other forms of commercial real estate like retail and multifamily. For perspective, with office buildings empty, rents for apartments go down and apartment complexes get riddled with vacancies. This makes it difficult for operators of real estate deals to find the cash flows needed to pay their maturing loans.
REITs that have been investing heavily in expanding their portfolios through new developments are going to be massive impairments as demand for apartments, retail space, office space, etc. grind to a halt. Could dividend cuts come to some of our favorite apartment REITs like $AVB
? I'm not sure. Overall, the issues with real estate are so bad that I hope that those looking to get into real estate no longer see it as a place for easy money. The era of low interest rates has made the industry bloated, less competitive, and has distorted the way industry veterans have allocated capital.
A massive cleanse of the industry, which has already arrived, is necessary for the industry to see a brighter future.